Implementation of Land Title Registration System in Malaysia

INTRODUCTION

Hong Kong is one of few common law jurisdictions that still adopt a deeds registration system, rather than a system of registration of title. Hong Kong’s Land Registration Ordinance (Cap.128) was enacted in 1844 and is the oldest piece of legislation still in use in Hong Kong. The system is costly and time-consuming as lawyers have to review title deeds for every property transaction to verify that the title is good. In contrast, a system of title registration, like the Torrens system adopted in Australia, will enable lawyers to establish conclusive evidence of ownership and interests in the property by conducting a search at the land title register. In fact, Malaysia has implemented such a system back in the 19th century and the current title registration legislation, the National Land Code, was adopted as early as in 1965.

In the past few decades, title registration system has become an international trend in land administration. Both United Nations and the World Bank recommended the adoption of such system [1] . Hong Kong is desirous of following such international trend and in 2004, its government adopted the Land Titles Ordinance (LTO), paving the way for the transition of a deed registration system to a title registration system in near future.

While Malaysia and Hong Kong have their own distinctive political, economic and social characteristics, there are common legacies shared by both jurisdictions. For example, both places were former British colonies, with Malaysia becoming independent in 1957 and Hong Kong reuniting with China in 1997. They both use common law inherited from Britain. The two governments also look to each other for inspiration in other reform initiatives like anti-corruption and financial development. [2]

In this article, the authors first give an overview of the title registration system under the Malaysian land law. It then examines the implementation experience of title registration system in Malaysia and evaluates what lessons Hong Kong can learn in its future implementation of the title registration system.

TITLE REGISTRATION SYSTEM UNDER MALAYSIAN LAW

The ‘Torrens system’, named after Sir Robert Torrens [3] and introduced in South Australia in 1858, is perhaps the best known system of title registration (Willoughby and Wilkinson, 1995). The introduction of a Torrens system in Malaysia was a slow and complex process spreading over a long period of time (Sood and Tee, 2008).

Apart from the Torrens system, Malaysian land law has also been influenced by Islamic law and customary law. Such influence can be seen from the concept of ‘harta sepencarian’ or ‘jointly-acquired property’. Under the concept, the right of the wife towards the property or land is recognized as long as it is acquired during marriage even if the property is under the name of the husband and the wife is a full-time housewife since the contribution of the wife to the family must be recognized. However, a declaration to such effect by court is required and is usually given upon the division of such property upon death or divorce.

The reason for the influence of Islamic law is not difficult to understand. Since 1400, (since the establishment of the Sultanate of Malacca) the locals (the Malays) have been professing the religion of Islam, a characteristic that remain until after independence [4] . Although the Malaya states were occupied by various countries for 446 years, they were not occupied comprehensively (with the exception of the short period of Japanese occupation) and autonomy largely remained. [5] The policy of various states was mostly one of ‘non-interference’ and the Sultans or local leaders had de facto control over land matter [6] . This was explained by Salleh Abbas, the former Lord President, as follows:

“there can be no doubt that before the British intervention, the Sultan was an absolute ruler of his State in whom powers to make laws and to govern the State were vested, and there he exercised these powers presumably after advice of, or more appropriately, consultations with his orang-orang besar (Ministers), was sought or held. After the British intervention, he still remained an absolute ruler but was required to administer the State with the advice of a British Resident” [7] .

In another case, Shaik Abdul Latif & Ors v Shaik Elias Bux (1915) 1 FMSLR 204, Edmonds JC further said that ‘the only law applicable to the Malays at that time was the Mohamedan law modified by custom’. Concerning the customary land, Horne J stated that:

“Customary land” is land the title to which has been endorsed “Customary land” and that the expression “customary land” meant land which was ancestral property (harta pesaka) as opposed to acquired land (harta carian) [8] .

Before the introduction of Torrens system to Malaysia, the rights over land allegedly belonged to the Sultans but the people were given the liberty to occupy and use it. [9] Sir Benson Maxwell CJ in Sahrip v Mitchell & Anor [1879] Leic 466 summarized the legal position by stating that:

“It is well known that by the old Malay law or custom of Malacca, while the sovereign was the owner of the soil, every man had nevertheless the right to clear and occupy all forest and wasted land, subject to the payment, to the sovereign, of one tenth of the produce of the land so taken… If he abandoned the paddy land or fruit trees for more than three years, his right ceased and the land reverted to the sovereign [10] .”

After the British occupation, common law and equity principles were introduced into the Federated Malay States (FMS) as new sources of land law, in addition to the local customary land tenure (Maidin, 2008). Moreover, the laws governing land in these FMS were characterized by the Torrens system, instead of Islamic land law [11] . This marked the beginning of a new regime of title registration law akin to the Torrens system in Australia on basis of the Real Property Act 1857 of South Australia. “The four states of Perak, Selangor, Negeri Sembilan and Pahang, which later became the Federated Malay States were the first to enacted laws introducing Torrens title for use in a Malaysia setting (Sood and Tee). Title registration system was first introduced in Perak by way of General Land Regulation 1879; in Selangor by way of General Land Regulation 1882, in Negeri Sembilan by way of General Land Regulations 1887 and in Pahang by way of the General Land Regulations II 1889 (Sood, 2008). By 1911, a unified Federated Malay States land enactment was passed. Currently, the main title registration statute in Malaysia is the National Land Code 1965 (‘NLC’). According to Suriyadi J in the case of Sime Bank v Mohd Hassan Bin Sulaiman [2000] 2 MLJ 158 at p161:

‘the National Land Code 1965 was made effective from 1st of January 1966 whereby thenceforth a uniform system of land tenure and dealing existed throughout Peninsular Malaysia. Penang and Malacca were also absorbed into the system by the promulgation of the National Land Code (Penang and Malacca) Titles Act 1963.’

Dealings recognized under the National Land Code may be divided into those capable of registration like transfers, charges, leases and easements and those which are not capable of registration including tenancies exempt from registration, statutory liens and lien-holder caveat (Sood, 2008).

At the beginning, the concept of indefeasibility under title registration system was well received in Malaysia as it purported to bring certainty to land transactions. In PJTV Denson (M) Sdn Bhd & Ors v Roxy (M) Sdn Bhd [12] , Raja Azlan Shah CJ reiterated that:

“The concept of indefeasibility of title is so deeply embedded in our land law that it seems almost trite to restate it. Therefore, the registration of the transfer of the said land under the NLC defeats all prior unregistered interests in that land unless the party who acquires the registered title has been guilty of fraud.”

Unfortunately, the title registration system in Malaysia failed to address important issues concerning indefeasibility and ownership. One major problem is concerned with the conflicting interests of the original owner and the third party bona fide purchaser. Under a title registration system, the original owner might lose his land without negligence or fault on his own because somebody forged his signature and sold his land to the innocent third party. On the other hand, if the system allows for rectification and ‘returns’ the land to the original owner, it will cause injustice to the innocent purchaser as he was not negligent and merely relied on the title register to complete his land transaction. The matter worsens when there is no compensation or indemnity fund to protect the interests of the parties. In recent Federal Court decision of Tan Ying Hong v. Tan Sian San & Ors, [13] the court overruled the problematic case of Adorna Properties Sdn Bhd vs Boonsoom Boonyanit @ Sun Yok Eng (the ‘Adorna’ case), [14] and restored the concept of deferred indefeasibility under s340 of the National Land Code 1965 [15] . While the situation has been improved with this latest landmark judgment, it is submitted that the interests of the innocent parties are inadequately protected under existing title registration law of Malaysia [16] .

IMPLEMENTATION OF THE LAND TITLE REGISTRATION IN MALAYSIA AND LESSONS FOR HONG KONG

The implementation of title registration system in Malaysia provides important lessons for Hong Kong in three major areas, namely, fraud, rectification and equitable relief.

Fraud

Fraud is the most serious problem in the implementation of land title registration system in Malaysia. For example, Mr. Anthony Wong Fook Hin, a Malaysian advocate and solicitor, recently highlighted in the 15th Malaysian Law Conference 2010 that nearly all forgery cases involve identity theft, that is, either the identity of the landowners are forged, or ‘faked’ identity cards and forged signatures and attestations are involved [17] .

In theory, title registration system was adopted to achieve the policy goals of simplicity and certainty. In a way, these two goals have been undermined by rampant cases of fraud. Nevertheless, others can argue that the adoption of title registration system has actually reduced fraud, if not eliminated it altogether.

The requirement to establish fraud to set aside a land transaction in a title registration system is clear. In Goh Hooi Yin v Lim Teong Ghee & Ors [18] , Edgar Joseph J stated:

“It is not enough that the transfer had the effect of depriving the plaintiff of a known existing right. It must be demonstrated that the transfer was executed with the intention of cheating the plaintiff of such right. Furthermore, it is immaterial to decide whether there were other intentions and equally material to decide which was the dominant intention. The intention to cheat must be one which has a substantial influence on the decision to make the transfer.”

Dishonesty or actual fraud cannot be presumed merely because the party has knowledge of an unregistered claim or interest in the land [19] . In cases where the registration is completed illegally, the registered title or interest may be defeasible by reason of fraud [section 340(2)(a)] or forgery [section 340(2)(b)].

As pointed out by Schultz (1993), a fundamental question constantly confronted by courts has been whether the concept of ‘deferred indefeasibility’, or that of ‘immediate indefeasibility’, should be adopted. [20] One difference between Malaysian land law and other Torrens jurisdiction is the effect of registration obtained by forgery. Various authors alleged that under the National Land Code, registration of forged instrument should only confer deferred indefeasibility but in other jurisdictions like Australia, such forged document can confer immediate indefeasibility [21] . This is not reflected in court decisions, especially in the abovementioned Adorna’s case’.

Two Federal Court Decisions

In Malaysia, the Federal Court decision in the abovementioned Adorna’s case has caused legal uncertainty in Malaysian land law for nearly nine years. The concept or principle of indefeasibility which is at the heart of Adorna’s case is not a complicated one. Under a Torrens system, the registration is everything and the State guarantee an indefeasible title to anyone who is registered on the register of title, as reflected in section 340 (1) of the National Land Code 1965. Certain exception is provided under subsection 340(2). Therefore, if the title or interest is acquired using fraud, misrepresentation, forgery or through an insufficient or void instrument, it can still be defeasible. Under the National Land Code 1965, only the subsequent bona fide purchaser should get an indefeasible title (and not the immediate bona fide purchaser). Unfortunately, the Federal Court held that Adorna still obtained a good title despite being an immediate bona fide purchaser.

The decision in Adorna has been persistently criticized by academics and practitioners as wrong and the decision was finally overturned recently. As abovementioned, the latest Federal Court decision in Tan Ying Hong v Tan Sian San & 2 Ors overruled Adorna’s case and restored the principle of deferred indefeasibility. The Chief Justice Tun Zaki Azmi also criticized the error committed by the Federal Court in Adorna Properties as “obvious and blatant”. [22]

In the case of Tan Ying Hong v Tan Sian San & 2 Ors, a dispute arose when a crook, used a forged a power of attorney of Tan, the original registered owner, to mortgage Tan’s property to United Malayan Banking Corporation (‘the Bank’) to obtain overdraft and loan facilities amounting to RM300,000 in favour of Cini Timber Industries Sdn Bhd (’Cini Timber’). [23] When Cini Timber defaulted payment, the Bank started foreclosure proceedings against Tan. In an unusual move, all parties in this case called on the Federal Court to re-examine and overrule the Adorna’s case. In the middle of the trial, the judge queried why there was no amendment made to solve the legal uncertainty created by the Adorna’s case. The Malaysian Attorney-General’s Chambers explained that there were many issues in need of further deliberations, including the issue of compensation, but they conceded that the Adorna’ case should be revisited and overruled, even before the delivery of the judgment. [24]

In Tan Ying Hong v Tan Sian San & 2 Ors, leave to appeal was granted on the following issue, namely, whether an acquirer of a registered charge or other interest or title under the National Land Code 1965 by means of a forged instrument acquires an immediate interest or title. The court replied in a firm no and the Adorna’s decision was overruled. In fact, the Malaysian Attorney-General’s Chambers contemplated an amendment of the National Land Code to curb fraudulent land transfers [25] . However, the head of the Civil Division in the A-G’s Chambers See Mee Chun admitted that the the Federal Court decision in Tan Ying Hong v Tan Sian San & 2 Ors will influence the further approach of amending the Code.

While the latest Federal Court decision was welcomed [26] , it failed to solve the problem of fraud completely. Fraud can still affect the title and the scope of protection afforded to an innocent registered owner is still limited [27] .

2. Rectification

Torrens system is a simple system. As explained in Teh Bee v Maruthamuthu [1977] 2 MLJ 7, “under the Torrens system the register is everything and it would be wrong to allow an investigation as to the right of the person to appear upon the register when he holds the certificate of title.” Under the title registration in Malaysia, if an instrument is apparently fit for registration, the registration authority is obliged to register it [28] . The scope of power of correction given to the registration authority is limited as it is confined to errors or omission made by the registration authority, and not the parties involved. This practice is laudable because if the registration authority is given enormous power of correction, it might adversely affect the interest of bona fide purchasers. However, the limited power of the registration authority may prejudice the interest of innocent registered owners if their titles were tainted with fraud.

3. Equitable Relief

The issue of whether the equitable principles are recognized by the title registration system in Malaysia was discussed a long time ago [29] . In principle, the Malaysian land law should reject any English rules of equity:

“The National land Code is a Complete and comprehensive code of law governing the tenure of land in Malaysia and the incidents thereof of it, as well as other important matters affecting land there, and there is no room for the importation of any rules of English law in that field except in so far as the Code itself may expressly provide for this [30] .”

However, the intervention of English equitable principles was seen in such cases like Wilkins and Kannamal, [31] in where the court held: “The Torrens system is a system of conveyancing, it does not abrogate the rules of equity.” Likewise, in Oh Hiam & Ors v Tham Kong [32] , Lord Russell of Killowen stated: “the Torrens system is designed to provide simplicity and certitude in transfer of land which is amply achieved without depriving equity of the ability to exercise its jurisdiction in personam on grounds of conscience.”

Accordingly, there has been some uncertainty over the scope of application or non-application of the English equitable principles in relation to the title registration law in Malaysia. Apparently, the uncertainty in relation to the applicability of equity principles in the Malaysian Torrens system arises from the conflicting legislative provisions within the land law legislation. [33]

CONCLUSION

Title registration system is a simplified and effective system which provides the parties with a high degree of certainty. It saves time and costs as there is no need to check the old title documents like what the solicitors are now doing in Hong Kong. However, the issues of fraud and rectification need to be addressed properly. Moreover, the applicability of equity principles to the title registration system needs to be carefully determined. These are the three major lessons that Hong Kong can learn from the implementation of title registration system in Malaysia.

ACKNOWLEDGEMENT

The research for this article was fully supported by HKU Funding Programme for Basic Research (Project No.20061159197) and General Research Fund (Project No.HKU753409H) and was developed from a conference paper presented at the ASLI Conference, “Law in a Pluralist Asia: Challenges and Prospects”, 7th Asian Law Institute Conference, Kuala Lumpur, Malaysia, 25-26 May 2010.